SAP Business ByDesign 2.5: time to invest?

Yesterday SAP announced the general availability of SAP Business ByDesign 2.5. In real world language that means it is there for anyone to check out and buy rather than what has been happening: a controlled release to achieve a baseline of 100 customers. Along with the release came confirmation that SAP is offering starter packs for as few as 10 users. These come in three flavours:

CRM: implementation in three weeks at a cost $13,500 (€9,900 £8,250) and a monthly subscription price of $89 (€65, £54) per user per month

ERP: integrated financials, accounting and analytics, implementation in six weeks at a cost of $37,500 (€ 24,900, £20,750) and a monthly subscription cost of $149 (€133, £120) per user per month

Professional Service Provider (PSP): implementation in eight weeks at a cost of $45,000 (€34,900, £29,100) and a monthly subscription cost of $149 (€133, £120) per user per month

On my ZDNet blog I said:

While the CRM package is attractively priced, I am less certain about the ERP offering. I don’t know for example where SAP is going to find a minimum of 10 ERP users at $149/month/user given it is concentrating upon financials and analytics. I could understand if it was targeting 3 full ERP users and 7 occasional analytics users and pricing accordingly. SImilarly, implementation pricing seems top heavy. I’d willingly pay $20-25K but $37.5K is a stretch. This seems to be signaling a minimum of 20 users on the basis of implementation equaling one years’ running cost.

The PSP offering should be attractive and I can see this doing well given the full process capabilities. Even so, $45K for implementation at the 10 person level is hard to justify without a full appreciation of the business advantages I’d expect to see. Perhaps they are signaling the 25 user company?

I’ve since thought some more about this. It is clear the CRM offering is aimed at the Salesforce.com and NetSuite CRM customer. SAP is trying to stick to its pricing guns where NetSuite and Salesforce will discount. How this will work in competitive situations has yet to be seen. However, as Salesforce and NetSuite continue to head up the food chain, they may choose to leave SAP scrapping over small company crumbs.

The ERP offering is too expensive both on implementation and monthly subscription. $6,250 per week may not seem a huge amount for implementation but at the end of the day, it’s an accounting system. If I’m moving from say a Sage 50 or Microsoft Dynamics then it can’t be that hard to parse the data across to SAP’s servers. Yes, the embedded analytics are very well executed and will provide a new dimension for accounting types to explore but does that justify $149/month? I can’t see it. I’d be more impressed if ERP was redefined to include HR admin and CRM at that price point.

PSP is the most interesting. It is a full end to end offering. Curiously, the per week implementation cost falls to $5,625 compared to the more limited ERP. That doesn’t make sense given this is a more complex solution requiring more care in assembly and configuration. Pricing the same as ERP also doesn’t make sense – or rather it makes ERP look expensive given SAP has always said that $149 was its per user per month price for all you can eat.

More important, SAP is signaling market benchmarks for implementation. In order to live with SAP, independent implementers will have to price significantly below SAP. They can do this through offsetting the monthly revenue stream they get from deals they close. In my analysis of a conversation between colleague Jon Reed and Ray Tetlow of Skyytek, I said:

[Ray] also says that with demand outstripping supply, the effective rates are higher for saas than on-prem deployments. That should be tempered against the need to ensure that these implementations happen swiftly and efficiently.

In turn, Ray’s firm reckons that implementation cost should run at about the equivalent of one years’ subscription cost. Assuming a 20 person business, then that comes in at about $36,000, slightly below SAP’s quoted ERP price and significantly below the PSP implementation figure. SAP will have worked out how to implement and provision at a figure which gives them a sensible economic return. The question remains – will the VARs and channel partners?

The SAP world is a magnet for implementers lured on the promise of huge returns. BYD will not give them that. As a pre-packaged solution that has limited configuration options it cannot command the premium the channel might think. The software developers’ kit (SDK) may give them more options. I know several SAP consultants that want to start coding ideas to test in the market. But given the starter pack size nature of the companies they will be talking to in the short term, I can’t see terribly many opportunities at the 10 person business size. At least not for the moment.

The potential to earn run on revenue from the monthly subscription number is a genuine incentive but will the channel understand this? They tend to ‘eat what they hunt’ having been brought up on a diet of large up front fees from which they might earn 40% plus one or two times license fee for implementation. Those days are fading into the distance and rapid adaptation to the new reality is essential. The upside is that volume of business should make up the delta, provided channel partners work hard to make sales.

If you’re on the buyer side, should you consider BYD? Absolutely. When I ran a deep dive back in 2008 I was impressed at the depth of functionality. As it has progressed, I like the analytics, the fact it will work on mobile devices, including iPad and the more general templating across a number of industries and geographies.

What about the channel? This is a new world and will require a new breed of sales savvy player. Deals are not just going to drop into the channel’s lap. They’ll have to work hard at going to market with the aim of achieving volume in much the same way the VSB players are doing. It won’t be easy but it won’t be impossible. If I was back in practice, I’d be trawling my client base right now and thinking about which would make strong candidates.

Tagged as: Business, Enterprise resource planning, ERP, Microsoft Dynamics, netsuite, Salesforce.com, SAP AG, SAP Business ByDesign